Contribution to Provident Fund

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 December 2009 We as employers have appointed some contractors who supply labour at our negotiated rates. The number of persons required vary on day to day basis. At the end of the month, the contractor raises a consolidated invoice on us.

I understand that we being the principal employer have to ensure that the contractor is depositing the PF.

In this regard I have the following queries:
1) How much amount has to be deposited by the Contractor as PF contribution.Assuming that the contractor has supplied only labour (manpower supply) and has raised an invoice of Rs. 10 lacs for the same.
2) How does the company ensure that the amount is deposited regularly by the contractor.
3) In case the contractor has defaulted, then what is the company's liability.

Murtaza I Bhagat

Murtaza I Bhagat (Expert)
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18 December 2009 THE EMPLOYEESâ€™ PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952

This act is an important piece of Labour Welfare legislation enacted by the Parliament to provide social security benefits to the workers. At present, the Act and the Schemes framed there under provide for three types of benefits â€“

- Contributory Provident Fund,
- Pensionary benefits to the employees / family members and
- Insurance cover to the members of the Provident Fund.

The object of the Act in 1952 was the institution of the compulsory contributory Provident Fund to the employees to which both the employee and the employer would contribute. The Employeesâ€™ Provident Fund Scheme was accordingly framed under the Act and it came into effect from 1-11-1952. Initially the title of the Act was, â€œThe Provident Fund Act 1952â€³.

The provisions of the act extend to whole of India except the State of Jammu & Kashmir and also the State of Sikkim where it has not been notified so far after its annexation with the Union of India.

Applicability

All the establishments employing 20 or more persons (5 or more incase of Cinema Theatres) are brought under the purview of the Act from the very date of set up subject to fulfillment of other conditions. The provisions of the Act apply on its own force independently.

Those establishments which do not have the prescribed number of employees but willing to register themselves to provide the benefits of Provident Fund to their employees can register voluntarily with the Regional Provident Fund Office.

Definition of Wages
In this act, Wages means and includes Basic + Dearness Allowances, Cash value of food concession and retaining allowances, if any.
Eligibility
- An employee at the time of joining the employment and getting wages up to Rs. 6,500/- is required to become a member.
- He / she is eligible for membership of fund from the very first date of joining a covered establishment.

Provident Fund Contribution
The provident fund contributions consist of contribution both by Employee and by Employer.

Employee Contribution
Provident fund contribution is recovered @ 12% of wages from employees who earn up to a maximum wage of Rs.6,500/- p.m. However, employees can contribute more than this statutory maximum which will be considered as Voluntary Contribution.

Voluntary Contribution
- An employee can contribute voluntarily over and above the stipulated rate of PF contribution by opting for Voluntary PF scheme at any rate as he / she desires i.e up to 100% of Wages.
- However, the contribution to VPF should be a certain % of wages and not a fixed amount.
- But the employer is not bound to contribute at the enhanced rate.
- It is suggested that the enhancement can be done at the beginning of the financial year for comfort level of calculation.

Employer Contribution
- Employer is also required to contribute towards provident fund; the deduction rate is same as employeeâ€™s contribution i.e. 12% of the wages.
- Of this 12%, 3.67% goes to Provident Fund and the balance of 8.33% goes to Pension Fund.

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